Market Insights

Stocks are rebounding as key earnings beat estimates and investors get comfortable with fewer rate cuts.

The S&P 500 rose 2.7 percent between Friday, April 19, and Friday, April 26. The Nasdaq-100 jumped 4 percent. Those were the biggest weekly gains for both indexes since the market started rallying in early November. Every major sector advanced, led by technology.

While strong results from Microsoft (MSFT) and Alphabet (GOOGL) helped cap the move on Friday, no single event caused the bounce. Gross domestic product increased much less than forecast and inflation measures remained elevated. However bond yields stopped rising and interest-rate futures were little changed. That may suggest investors have priced in more hawkish news from the Federal Reserve at its key meeting on Wednesday.

MSFT said AI demand added about one-quarter of the growth at its Azure cloud-computing division. CEO Satya Nadella also noted 35 percent sequential increase in users of its GitHub Copilot developer tool. GOOGL surged to a new all-time high after YouTube advertising rebounded and the company started paying a dividend. Profitability at the company’s Cloud business also spiked from 2.5 percent to 9.4 percent as new products came online.

That helped lift other companies associated with AI like Nvidia (NVDA) and Super Micro Computer (SMCI). Both fell sharply the previous week.

Chips and China Tech

The two best-performing groups last week were Chinese technology and semiconductors.

There was no single catalyst for China, but the rebound came after Treasury Secretary Janet Yellen suggested the U.S. won’t impose further restrictions on Beijing. The country’s securities regulator also said on April 19 it wanted to ease trading rules. In addition, Goldman Sachs turned more positive on the country on April 15 and UBS followed with an upgrade last Tuesday. Could those headlines mark a turn following a major slide in 2021 and 2022?

Homebuilders, one of the top-performing groups in the last six months, also rebounded. Precious metals were the main laggards.

Medical-device maker ResMed (RMD) rallied the most in the S&P 500 after beating estimates for the second straight quarter. Semiconductor-equipment company Teradyne (TER) also jumped on strong results. Hasbro (HAS) had its biggest weekly gain since 2020 after cutting inventories to boost profit margins.

Tesla (TSLA) had its best week in over a year, up 14 percent. While the EV maker’s results missed estimates, CEO Elon Musk cited progress toward making cheaper models without having to retool production lines.

Charting the Market

Last week’s bounce in the S&P 500 followed some potentially important signals.

First, it retraced slightly more than half its rally in the first three months of the year. Second, Wilder’s Relative Strength Index (RSI) rebounded from its lowest reading since early November. The index also held prices from February 20 and 21, immediately before NVDA’s last earnings report triggered a bullish gap higher.

Those patterns could make chart watchers think stocks have completed a needed pullback without breaking their uptrend.

At least two other key charts had potentially meaningful signals.

The Nasdaq-100 bounced after touching 16,974 — just 3 points above its peak all of last year. Has “old resistance” become “new support?”

The yield on the 10-year Treasury note also paused near its levels from early November. Remaining at or below these levels could suggest rates are finally starting to peak — a likely positive for risk appetite. (Remember stocks fell between August and October as yields hit multiyear highs.)

The Week Ahead

This week is very busy, with the Fed meeting, major earnings and the key monthly employment report.

Given the importance of bond yields, investors may watch the Treasury Department’s announcement of debt issuance at 3pm ET today.

Tomorrow morning brings estimates of labor costs in the first quarter. That could impact views on inflation. McDonald’s (MCD), 3M (MMM) and PayPal (PYPL) report earnings in the premarket. Amazon.com (AMZN), Advanced Micro Devices (AMD) and SMCI issue results after the closing bell.

The Fed’s announcement is at 2 p.m. ET on Wednesday. Chair Jerome Powell will give a press conference about 30 minutes later. The Institute for Supply Management’s manufacturing index and crude-oil inventories are due earlier in the day. Qualcomm (QCOM), Pfizer (PCE) and eBay (EBAY) are some of the noteworthy earnings.

Initial jobless claims are on Thursday morning. Apple (AAPL) reports in the afternoon.

Non-farm payrolls on Friday morning will be another big catalyst. Investors are likely to focus on the unemployment rate and wages given their potential impact on interest rates.